Claims On-chain: #CordaLove Charms Insurance

June 27, 2018

What Corda’s Network Effects Mean for Insurance and Contract Placement

By: Ronnie Kher

What do we address in this blog post?

“Blockchain for insurance” is “Corda for insurance”

How does a broad ecosystem and network on-ledger help contract placement?

“Blockchain for insurance” is “Corda for insurance”

With the decision of the industry-leading B3i consortium to port from IBM’s Fabric to Corda, insurance on Corda has reached critical mass. The right groups and ecosystems are coming together in order to effect change and form standards, and better yet, the trend is self-reinforcing. As “Metcafe’s Law” states, the value of a network is proportional to the number of connections in the network squared – the more insurers that build upon on a common platform, the more valuable the platform becomes to all participants due to the interoperability of applications.

Source: Ledger Insights(B3i has since confirmed their move to Corda. Read the official press release here)

The consolidation around Corda creates network effects industry-wide. To more tangibly examine the benefits of these network effects, in this post we examine a specific use case that involves a network of many different entities and counterparties – contract placement.

What is contract placement?

Contract placement is the process of negotiating a potential insurance contract between a broker and an insurer in order to issue the insurance contract to provide coverage for an end customer. For most commercial and specialty insurance scenarios (except for small commercial and some mid-market products) this is an arduous, complex process involving several entities – a broker, one or more insurers, and potentially a reinsurer and reinsurance broker. Further, outsized risks generally mean that multiple insurers come together to insure the risk at the requested limit price, resulting in additional complexity for the broker in managing the placement process.

Contract placement, with the extensive negotiation cycle between a broker and insurer(s), as well as between an insurer and reinsurer(s) – with or without a reinsurance broker thrown in – has several inefficiencies related to inter-firm coordination:

Extensive manual intervention and reconciliation for both brokers and (re)insurers to keep track of requests and responses

High IT spend for all participating parties to maintain an audit trail of the negotiation history between different entities

Heavy investments by each firm in document storage systems to maintain separate contracts over the policy life cycle and to ensure generated documents are tamper proof

How do network effects help with contract placement on-ledger?

Involving brokers, insurers, and reinsurers onto the same blockchain platform can bring the following benefits:

Near-instantaneous communication between participating parties to eliminate delays associated with reconciliation and coordination

Real-time consensus among all parties involved in the contract on coverage, price, terms and conditions

Complete audit trail from all sides of negotiations and data exchanges

Greater regulatory compliance throughout the insurance industry due to instantaneous communication of in-force contracts to the regulator

Eliminating “double spend” problem of having the customer buy the same policy from different insurers by involving the notary (regulator)

Ernst & Young in partnership with GuardTime has developed a blockchain application to track the vessels for marine hull insurance (Insurwave). Insurwave was built with collaborators such as ACORD, Maersk, MS Amlin, XL Caitlin, Willis Towers Watson, and Microsoft who will bring the application onto Microsoft Azure. Hear an interesting podcast on the effort here.

ChainThat, a UK based ISV (Independent Software Vendor) developed a contract placement application using Corda. They currently have partnerships with Xceedance and Send Technology. The demo video is available here.

Capgemini, in collaboration with AIG, AON, Willis Towers Watson, and Generali Global Corporate & Commercial Italia, has developed a contract placement proof of concept for the Italian general insurance market utilizing the Corda platform. Additional details are available here.

The industry’s recent choices in blockchain platform affirms the “Corda doctrine” – that data privacy is pivotal for a network of enterprises and that Corda’s peer-to-peer data sharing approach matters for efforts going into production. For a highly regulated industry like insurance, only Corda can ensure that the entire insurance supply chain of brokers, (re)insurers and insureds can interact in a seamless, secure, and private manner.

From contract placement to insurance as an industry, we are excited to see the new opportunities and efficiencies that blockchain technology will enable between this wide range of participants – the right network is in place.

Are you forming an ecosystem of your own or do you want to join an existing one?

At R3 we have an established Insurance Center of Excellence that works extensively with insurers and guides them in their blockchain journey through ideation workshops, design workshops, scheduled projects, and MVP development to help insurers target their biggest pain points first. For additional information please get in touch with us at insurance@r3.com.